Wall Street sinks and FTSE 100 index closes below 6,000 after another turbulent day in China

The Dow Jones recorded its worst four-day start to a year on record, following another day of turmoil in China, which also left the S&P 500 on track for its worst start to a year since 1928.

The Dow Jones industrial average fell 2.32 percent, to 16,514.1, the S&P 500 dropped 2.37 per cent, and the Nasdaq lost 3.03 per cent.

The dollar fell one per cent against a basket of currencies, losing 1.5 per cent to $1.0937 against the euro and 0.8 per cent to the yen at 117.48, and the benchmark US Treasury yield fell to its lowest since October last year.

"Once more the FTSE 100 has dropped below the 6,000 level and looks set to retest its December lows on a combination of concerns about slowing global growth and weakness in the Chinese economy," said Michael Hewson, chief markets analyst at CMC Markets.

Earlier this week a private survey showed Chinese service sector activity having expanded at its slowest rate in 17 months in December, causing global shares to fall.

“Global equity markets are now battling the third wave of deflation since 2008. The epicentre is not within the developed world nor the financial system but, this time, within the developing world and the global manufacturing sector, where capital allocation has been poor and where overcapacity is rife," Dominic Rossi, global CIO for equities at Fidelity International, said.

“A crisis in emerging currency markets has been flagging these problems for 18 months. The catalyst, now, is the Chinese yuan which is working through a necessary readjustment. A lower yuan will further deflate the demand for commodities and traded goods generally," he added. "A further downside adjustment to potential world output is now unavoidable."

"The transition of Burberry's equity story towards a more moderate top line growth profile ... has been tricky due to a deteriorating external environment and the brand's above sector-average exposure to slowing Chinese consumer demand," RBC analysts said in a note.

Oil companies also took a hit after the price of Brent crude oil slid below $33. BG Group was 1.94 per cent lower at 936.9p per share, while Royal Dutch Shell fell 2.79 per cent to 1,462p per share. BP's share price fell 1.67 per cent to 337.7p per share.

"Oil, falling to levels last seen in 2003 seems unwilling to bottom out and this is naturally dragging the likes of BG Group and Shell lower," said Brenda Kelly, head analyst at London Capital Group. "The options market in oil is busy as traders appear to be preparing for ever lower prices from here. The cut in global growth forecasts by the World Bank is certainly not a positive for oil demand and the supply glut shows no signs of bullishness for the price either."